U.S. Tax Information Session for Foreign Nationals of Fermilab

1. INTERNATIONAL EXECUTIVE SERVICES U.S. Tax Information Session for Foreign Nationals of Fermilab TAX

2. NOTICEANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials.The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

3. Agenda Definitions U.S. Taxation Filing Requirements Taxable Income Deductible Items State Considerations Treaty Considerations Questions and Answers

4. Definitions

5. General Terminology • National – Owes permanent U.S. allegiance (holds U.S. passport, citizenship) • Alien – Not a citizen or national of the U.S. • Immigrant – Permanent U.S. Entrance • Non-immigrant – Temporary U.S. Entrance • Residency Status– Determination of how individual is taxed.

6. 2010 U.S. Tax Rate Brackets

7. U.S. Taxation

8. Taxation Overview • U.S. Nationals or Green-card holders • Taxed on worldwide income • U.S. Resident Individuals: • Taxed on worldwide income • Same rules apply as to U.S. citizens

9. Taxation Overview • Nonresident Individuals: • Taxed on geographical basis • Graduated rates for effectively connected U.S. source income • 30% rate for NOT effectively connected U.S. source income • Single or MFS filing status ONLY • May elect to be treated as a full-year resident status, if eligible

10. Taxation Overview • Dual-status Individuals: • Nonresident for part of the year • Resident for the remainder of the year. • Single or MFS filing status, tax rates ONLY. • May not file as head of household. • May elect full year resident status. • May take exemption for spouse IF no gross income. • Cannot use standard deduction; must itemize.

11. Determination of Resident/Nonresident Status • The Lawful Permanent Resident Test: • “Green Card”— immigrant status, treated as U.S. resident for tax purposes. • Abandoning “green card” is a formal process. • Must file annual U.S. tax return, regardless of where the taxpayer resides or establishes residency.

12. Residence Based on Physical Presence – General Rule • The Substantial Presence Test: • 31 days of U.S. physical presence in current year for any reason plus: • “Look back test”—183 days of U.S. presence using formula as follows: • All days of presence in current year, plus • 1/3 of days in first preceding year, plus. • 1/6 of days in second preceding year. • A partial day in the U.S. = a day of U.S. presence.

13. Residence Based on Physical Presence - Example Japanese executive employed by U.S. company is present in the United States for: 130 days during calendar year 2010, 120 days during calendar year 2009, and 120 days during calendar year 2008. Executive is resident for 2010 since he is present on at least 31 days, and on more than 183 days during 3 year look back period.

14. Residence Based on Physical Presence - Exceptions • Commuting from residence in Canada or Mexico does not count, if you regularly commute. • Commute = travel to work and return to residence within 24 hour period. • Days you are in the United States, in transit between two places outside the United States.

15. Residence Based on Physical Presence - Exceptions • Exempt Individual: • Definition: An individual will not be treated as being present in the U.S. on any day on which he is an exempt individual. • Days of presence as exempt individual will not count for purposes of applying the substantial presence test.

16. Exception: Teacher or Trainee (Visas “J” or “Q”) • Must comply with requirements of visa status. • Not exempt in current year if: • Previously exempt for any part of 2 of 6 preceding calendar years OR - Previously exempt for any part of 4 of 6 preceding calendar years if foreign employer paid all of compensation in current year and each of 6 preceding years.

17. Exception: Student (Visas “F,” “J,” “Q,” or “M”) Must comply with requirements of visa status. Not exempt in any part of current year if exempt for previous 5 calendar years, unless intention not to reside permanently in United States is established.

18. Closer Connection • An individual who otherwise meets the substantial presence test is considered nonresident if: • Present in United States < 183 days in current year • Has tax home* in foreign country, and • Has closer connection to single foreign country in which (s)he has a tax home* than to the United States. *Tax Home = main place of business, employment or post of duty

19. Filing Requirements

20. Filing Status • Resident Status = Form 1040 • Nonresident Status = Form 1040NR • Exempt Individuals = Form 8843 • Dual Status Individuals = Form 1040 and Form 1040NR • Possible to be Both Resident and Nonresident in the Same Year • Year of Arrival Issues • Year of Departure Issues • Required Tax Return Documents and Information

21. Year of Arrival Issues • Residency Start Date - Lawful permanent resident test: If you also meet the substantial presence test: Earlier of: • First day of physical presence in year you meet test OR • First day of presence with “green card.” If you do not also meet substantial presence test: • First day of presence with “green card.”

22. Year of Arrival Issues (Cont’d) • Residency Start Date - Substantial presence test: • Generally first day you are present in the United States during calendar year. • May exclude up to 10 days of actual presence if on those days you: - Had a closer connection to foreign country than to United States and - Tax home was in that foreign country. - Cannot exclude any days in a period of consecutive days if all days cannot be excluded.

23. Residency Elections • Full-year Residency Election • There is an election available that can allow a married taxpayer to be treated as a full year resident. • First-year Resident Election • Elect to be treated as a resident in current year, if you will become resident in following year.

24. Residency Elections – why? Access to Married Filing Joint rates Ability to choose standard or itemized deductions, greater range of deductions available. Exemptions for spouse, dependents.

25. Full Year Elections Available §6013(g) • Nonresident at year-end • Married to a citizen or resident of the United States • Election remains in place until end of marriage or revocation § 6013(h) • Nonresident at beginning of the year • Resident at the end of the year • Married to a citizen or resident of the United States

26. First-Year Election • A qualifying individual is one who is: • Not a resident during the preceding calendar year and; • Resident in following calendar year, under the substantial presence test and; • Present in the United States for at least 31 consecutive days during the election year and; • Present in the United States during the period: • beginning with the 1st day of 31-day period and • ending with the last day of the election year • for a number of days equal to or exceeding 75% of total number of days in period (up to 5 days of presence outside the U.S. may be disregarded).

27. Year of Departure Issues • Residency Termination Date: • General rule – terminates on 12/31 unless • Establishing a tax home • Establishing a closer connection • Must attach statement to return. • De minimis presence • No-lapse Rule: If you are resident during any part of two consecutive years, you are resident in intervening period.

28. Year of Departure - Filing Requirements • Residency Termination Statement • Must include: • Individual’s name, address, taxpayer identification number. • Country that issued individual’s passport and passport number. • Taxable year for which statement is to apply. • First and last days that individual was present in the U.S. during the current year. • Dates of de minimis presence days individual is seeking to exclude. • Sufficient facts to establish closer connection to foreign country • Date that individual’s status as permanent resident was abandoned, if applicable

29. Year of Departure - Filing Requirements (Cont’d) • Taxpayer prefers to be a resident at year-end in the year of departure • Not an option—residency termination date is based on facts and circumstances • Taxpayer is a nonresident at year-end in the year of departure • File statement • If the taxpayer has permanently departed he will be considered a nonresident at year end

30. Required Documents and Information You need to gather the following information to complete your Global Organizer • Travel schedule including workdays vs. vacation information • Form W-2s • Form 1099s: Interest and dividends (attach to return if there is withholding) • Form 1099-B: Stock transaction details including cost basis and holding period • Rental property income and expense details • Form 1098s: Mortgage interest expense and real estate taxes • Charitable contributions (Qualified U.S. Charities only) • Closing statement if property purchased or sold during 2010 • Copy of 2009 U.S. Federal & State Tax Returns.

31. Taxable Income

32. Domestic Law • De Minimis Rule • In U.S. for 90 days or less • Performs services for foreign employer • Earns $3,000 or less for U.S. services • No U.S. filing requirement

33. Basic Rules • Resident individuals - taxed on worldwide income, may be able to deduct worldwide expenses. • Nonresident individuals – taxed on U.S. sourced income, can deduct only limited expenses. • Dual-status individuals – some features of both systems.

34. Tax on Nonresident Individuals • Income Not Connected to a U.S. Trade or Business: • Certain U.S. source investment and passive income • Taxed at flat 30% (or lower treaty rate) • No deductions allowed • Income Connected to a U.S. Trade or Business: • Employment or business Income • Deduction for expenses allowed • Taxed at graduated rates • Effectively connected income

35. Taxation of Foreign Nationals- Sourcing Rules

36. Taxation of Foreign Nationals – Income Subject to Tax and Withholding • Generally, fixed or determinable annual or periodic income from U.S. sources • Income is fixed when it is paid in amounts known ahead of time. • Income is determinable whenever there is a basis for figuring the amount to be paid. • Includes interest, dividends, rents, annuities, profits • Required to withhold federal income tax UNLESS • Income is foreign sourced • Income is specifically excluded • Income qualifies for income tax treaty relief.

37. Income Not Subject to Tax and Withholding • Qualified scholarship or fellowship grants are excluded from gross income • Degree candidates. • Educational organizations. • Participant in exchange or training program paid by foreign employer.

38. Deductible Items

39. Deductions from Income Standard deduction: dollar amount that reduces income on which individual is taxed. Single filer may (typically) claim $5,700, married filing joint filer may (typically) claim $11,400 Itemized deduction: deduct certain expenses incurred during tax year, where total is greater than standard deduction amount, or individual does not qualify for standard deduction.

40. Typical Itemized Deductions Mortgage interest Real Estate Taxes State Income Tax Charitable contributions

41. Exemptions Exemption: reduces taxable income. Individual may claim $3,650 for each exemption for which he/she is eligible. Dependent: individual must meet set of tests to be considered either “qualifying child” or “qualifying relative”.

42. U.S. Tax Law Facts and Figures

43. U.S. Tax Law Reminders Facts and Figures

44. State Considerations

45. State Issues • Each State has separate rules • Residency • Income Subject to Tax • Days of Presence • Allowable Deductions

46. Treaty Considerations

47. Treaty Provisions • Varies by country to country • Requires individual to complete Form 8233, “Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual” • Individual requirement to file Form 1040NR based on Form 1042-S

48. Useful Resources for Foreign Nationals • IRS Website: www.irs.gov • IRS Publication 519 “U.S. Tax Guide for Aliens” • IRS Publication 17 “Your Federal Income Tax for Individuals” • www.kpmg.com

49. Questions? Thank you for your participation!